LONDON- Hedge fund managers were deeply divided over the future direction for oil prices, until the United States announced fresh tariffs on China and sent prices plunging late last week.

Hedge funds and other money managers increased their net long position in the six major petroleum futures and options contracts by 20 million barrels over the seven days ending on July 30.

But hedge fund buying came when trade talks between the United States and China appeared to be back on track and before the announcement on Aug. 1 of new tariffs.

Fund managers were net buyers of Brent (+20 million barrels), U.S. heating oil (+7 million) and European gasoil (+6 million) but sellers of NYMEX and ICE WTI (-11 million) and U.S. gasoline (-2 million).

Before the tariff announcement, there were indications of a deep split between those portfolio managers bullish about oil because of supply disruptions and OPEC cuts and those bearish because of the economy.

Funds added 37 million barrels of bullish long positions, as well as 17 million barrels of bearish shorts, in the week ending July 30, according to exchange and regulatory records.

Bullish longs rose to 844 million barrels, up from a recent low of just 744 million in the middle of June. But bearish shorts also climbed to 241 million, the highest level since February.

Before the tariff announcement, the market was more evenly split between hedge fund bulls and bears than at any time since the middle of June.

But the announcement bombed into this delicate balance, severely disrupting traders' assumptions, sending Brent tumbling by more than 7% on Aug. 1, the largest one-decline for more than three and a half years.

From a positioning perspective, the oil market still looks close to balance, with a roughly equal chance of short covering or long liquidation moving prices higher or lower.

From a fundamental perspective, however, the economic outlook has clearly deteriorated, with U.S. interest rate traders marking up the probability of recession sharply.

(Editing by David Evans) ((john.kemp@thomsonreuters.com and on twitter @JKempEnergy))